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Entrepreneurship and the Political Economy of Growth

University of Missouri, Division of Applied Social Sciences; Norwegian School of Economics, Department of Strategy and Management; University of Missouri, Truman School of Public Affairs; Mises Institute

Policymakers talk about entrepreneurship as a way of improving economic conditions in developing countries the way they used to talk about roads, dams, bridges, and other infrastructure projects. But what exactly is entrepreneurship? Is it simply self-employment or new-venture formation — a set of outcomes that can be measured, analyzed, and perhaps stimulated using the usual sorts of economic policy instruments — or a way of thinking or acting? This paper describes entrepreneurship not as a phenomenon, but as a behavior, that of judgmental decision-making under uncertainty, and examines the institutional environment for effective entrepreneurial judgment. It suggests that the best policy to encourage entrepreneurship is to allow an environment that encourages entrepreneurship to flourish — stable money, the rule of law, and free and open competition. It argues that government policy should not 1) create and exacerbate business cycles, 2) bail out failing enterprises, 3) focus on misleading aggregates, and 3) plan clusters of entrepreneurship and innovation.